TSP Talk Blog

The good news is, stocks didn't rollover for a second straight day and actually held up well. The bad news is, the highs were made right after the opening bell and decent morning gains turned into small gains to small losses, so there was no upside follow through to Monday's positive reversal action. Small caps and the I-fund did well, but like other indices, they both have some work to do on the charts to improve the technical picture. Bonds were flat and the dollar was down, while gold and oil were up.

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Internally the numbers were positive with advancing issues outpacing decliners, and share volume was flat on the NYSE, but the Nasdaq saw advancing volume 3 to 2 over declining.




The dollar was down helping commodities and the I-fund to decent gains. The lower high and lower low may indicate that the upper open gap may stay open, but with the Fed on deck today, we could see a lot of movement where technical analysis won't mean as much.




Monday's sell off was triggered by the possibility of default from China's 2nd largest property development company Evergrande, but based on the action in the stock this year, bad news doesn't appear to be a surprise as the price is down over 80% this year, and it has been a steady decline since the volatility in January. As we talked about yesterday, the sell off may have just given a market that was due for a pause, a reason to do just that.




Day two of the two day FOMC meeting concludes today with an interest rate and policy decision on Wednesday at 2 PM ET. No interest rate changes aren't expected but everyone is anticipating some comments on the bond buying program and whether they will give a hard date to any tapering of the program.

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The S&P 500 (C-fund) tried to fight back and add onto the positive reversal from Monday, but the bears were firm in holding back a rally. They even swatted down a big morning pop higher to push the indices well off their highs. The top of that open gap and the 50-day EMA are near the 4425 area, and that could be some stubborn resistance if the bulls can push stocks a little higher from here. A better case for a sustained low however might be a successful test of Monday's lows in the coming days or weeks. Of course if that low near 4300 doesn't hold we'd have to go through all this "retest" stuff again.




The DWCPF (S-fund) had a good bounce but it still closed below the 100-day EMA again. The key here is for that rising red support line to hold, because if it does not, we could easily see this fall down to test the 200-day average which is 100 points lower.




The EFA (EAFE Index / I-fund) was the leader yesterday after the dollar pulled back, but it did close quite a bit off its highs. It managed to fill its open gap already (blue) while opening yet another gap (red) near 79.20, so this has some room to move back down if it can't follow through today with more gains.




The BND (bonds / F-fund) was basically flat as it makes a home in the middle of that flag like trading channel.




The Dow Transportation Index was down again, and after the bell FedEx was down sharply after reporting earnings. It did close above July's low for a second straight day, so that seems to be the key support level for now.




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Tom Crowley


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